Highlights of the week of August 25, 2014

Burger King & Tim Hortons LogoSINOPEC logo

Dear PGM Capital Blog readers,

In this weekend’s blog edition, we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of August 25, 2014.

  • Burger King acquires Tim Hortons and moves to Canada.
  • Sinopec reports blockbuster earnings.
  • Palladium closes above US$ 900.00 an oz, for the first time in 11 years.

On Tuesday, August 26, 2014, an agreement was reached  between Tim Hortons Inc. (TSX, NYSE: THI) and Burger King Worldwide Inc. (NYSE: BKW) to create the world’s third largest quick service restaurant company.

The new combined company with approximately US$23 billion in  sales, over 18,000 restaurants in 100 countries and two strong, thriving, independent brands, will have an extensive international footprint and significant growth potential.

Tim Hortons & Burger King

The new global company will be based in Canada, the largest market of the combined company.

Under the terms of the transaction, which has been unanimously approved by the Board of Directors of both companies, Tim Hortons shareholders will receive C$65.50 in cash and 0.8025 common shares of the new company per Tim Hortons share. Based on Burger King’s unaffected closing stock price as of August 22, 2014, this represents a total value per Tim Hortons share of C$89.32 and based on Burger King’s closing stock price as of August 25, 2014, this represents a total value per Tim Hortons share of C$94.05

On Friday, August 22nd, 22 August, 2014, Asia’s largest refiner by capacity, China Petroleum & Chemical Corporation (“Sinopec” or “the Company”) (HKEX:386) announced its interim results for the six months ended 30 June 2014.

Sinopec Service Station

Financial Highlights:

  • Operating profit was up 11.8 per cent year-on-year at 52.27 billion yuan.
  • Revenue fell 4.2 per cent to 1.36 trillion yuan from 1.42 trillion yuan year-on-year
  • Net profit for the first half of 2014 was up 7.5 per cent year-on-year
  • Net cash flows from operating activities were 58.214 billion yuan, up 76.9% year-on-year.
  • External sales for chemical products, which account for 13.1 per cent of its turnover, was 177.2 billion yuan, a decrease of 1.7 per cent compared to the previous year.
  • The Board of Directors proposed an interim dividend of 0.09 yuan per share, payable on september 30, on 2014, to share holders on record on September 23rd 2014.


Moody’s Investors Service says China Petroleum & Chemical Corporation’s (Sinopec Corp) 1H 2014 results continue to support its own as well as its parent’s, China Petrochemical Corporation’s (Sinopec Group), Aa3 issuer ratings and stable outlook.

“Looking ahead, Moody’s expects Sinopec Corp’s performance will remain stable in 2H 2014, given relatively stable expectations for crude oil prices,” says Lu, who is also the International Lead Analyst for Sinopec Corp.

Although volumes have increased with approx. 60 percent, the precious metals, Gold & Silver, still remain deeply lodged in the sideways range that has kept them trapped recently, as geopolitical pressures and a strong dollar have been unable to shift prices significantly in either direction.

Only palladium, which is the only precious metal, that didn’t experience a correction last year continues its rather relentless climb, for it to close today at US$ 902.00 an Ounce as can be seen from below charts.

Palladium 29 august

Palladium 5-year chart


The Burger King – Tim Hortons Deal:
The newly created firm will be headquartered in Canada where the corporate tax rate is lower than in the United States. While Burger King denies it was motivated by lower taxes, the deal has revived the debate over so-called tax inversions, whereby U.S. companies use mergers to move overseas and avoid U.S. tax rates.

In July, the Obama administration estimated tax inversions could cost the United States as much as US$17 billion per year. One investor who stands to profit from the Burger King deal is President Obama supporter Warren Buffett. He lent Burger King $US3 billion at a lucrative 9 percent interest rate to help complete the deal.

Below video explains details about the tax benefits for Burger King, when it moves its Headquarter to Canada.

So, let’s assume that by moving its HQ form the USA (and this is just an educated guess) the company will reduce its Corporate Tax with 2.5 percentage points. Taking Burger King’s 27.5 percent current effective tax rate, we’ estimate that the effective tax rate in the near future will be 25 percent.

In 2013, Burger King’s income before taxes totaled US$ 322.2 million. That means a theoretical tax savings of US$8.1 million.

As can be seen from below chart the shares of the company rose as a consequence of this merger and subsequent move of its HQ to Canada with approx. 20 percent, during the week of August 25th.

Burger King all Time Chart

Burger King all Time Chart

In a statement on Tuesday, August 26th, a Moody’s Investors Services Vice President and Senior Analyst Chenyi Lu, said:

“The improvement of Sinopec Corp’s 1H 2014, was in line with our expectations and was driven mainly by stronger profitability in its refining segment, which was in turn the result of the government’s reform of the pricing mechanism for refined oil products in March 2013”

Looking ahead, Moody’s expects Sinopec Corp’s performance will remain stable in 2H 2014, given relatively stable expectations for crude oil prices,” says Lu, who is also the International Lead Analyst for Sinopec Corp.


Based on the company’s fundamentals and with a Price to Earnings ratio of 12.3, Price to Book of 1,23 and a dividend yield of 4.4% we have a STRONG BUY rating on the stock of the company.

As can be seen from below chart the stock of the company appreciated with approx. 555 percent, since it went IPO at the end of 2000.

Sinopec all time chart

SINOPEC All Time Chart

Above chart also shows that the company has increased its dividend from HKD 0,0937 in 2004 to HKD 0.2789 per share, an increase of 197.65 percent during the last 10 years.

It is also worth mentioning that the company had a stock split of 13:10 on July 2, 2013 and that its latest dividend payout of June 19 of the year is equivalent to its dividend before the split, which means that the company has raised its dividend in one year with approx. 30 percent.

Palladium, mostly used in catalytic converters in cars alongside platinum and in jewelery, has advanced 25% so far this year on concerns about Russian supplies and as supply was cut by a mine strike that ended in June in South Africa, the second-biggest producer.


Tension over Ukraine led to the U.S. and European Union slapping sanctions on Russia, the top supplier.

There have been no sanctions on palladium, which is heading for a third annual supply shortfall. Indeed, there is a risk that sanctions could lead Putin to use palladium as he has done in natural gas and secure higher prices for Russian exports.

Due to the above mentioned fundamentals we have a BUY rating on Palladium.

Last but not least, before following any investing advice, always consider your investment horizon and risk tolerance and financial situation and be aware that stock prices don’t move in a straight line and that sharp corrections may happen in the short term.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek


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